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Credit Score Vs Credit Rating, What is The Difference?

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Credit score and credit rating get often used interchangeably, but there are quite a few discrepancies between them. A credit rating is usually expressed in terms of a letter grade and is generally used to depict the creditworthiness of a corporation or business. Whereas, a credit score is expressed in the form of a number but is also used to tell how much a business or an individual consumer can be trusted. Knowing in which range of credit score you fall in can assist you in making cannier financial decisions. Due to the various credit scoring models in the market, a credit score comparison might get a tad bit confusing. To overcome this problem, you can avail services such as to discredit.

An individual’s credit score depends on the information gathered from there major crediting bureaus, namely Experian, Transunion and Equifax. It ranges from 300-850 with FICO being the most reputed method for credit scoring as it takes information from all major crediting agencies to determine an individual’s credit score. Different crediting agencies produce credit ratings. On the other hand, with Standard & Poor is being the most reputable one. It uses a letter grading system to distinguish between governments or the corporation’s capacity to meet financial obligations.

Your Credit Score

As mentioned previously, your credit score is going to be a number that will give your lender a general idea of how safe or risky you are as a borrower. The most renowned method for generating credit decisions is the FICO score which has multiple variants. Most of these versions get catered towards scores for generic products such as credit cards or house loans. These scores are all based on the information from your credit report. A higher score generally means you are more likely to appear reputable and trustworthy to financial institutions and more likely will be the chance of you receiving a loan from your lender. Financial issues such as excessive debts can be very detrimental towards your credit score. Usually, lenders will set a credit threshold for their clients to meet. This limit is not constant and can vary from lender to lender.

When you apply for a loan or a credit card, the lender will determine your eligibility by checking your credit score. It is generally a good idea if you keep monitoring your credit score from time to time, so you know what to expect from a lender; This can be very beneficial if you are planning to build your credit.

These scores are all based on the information from your credit report. Your credit report depends on various factors, some of which are:

  • Are you a defaulter? Is your repayment history well and good and whether or not you have any derogatory marks. Are you repaying within the required amount of time or not?

  • Depending on your credit limit ho much money do you owe?; This is also known as credit utilization ratio

  • What is your age of credit? Or how long you had credit accounts.

  • How many times did you apply for credit recently?; also known as hard inquiries.

Credit scores will fluctuate from time to time based on your account activity. As mentioned previously, these scores will vary from 300 to 850. A score of 690 or above is deemed as good whereas that of above 720 is considered excellent. You need to make sure that you use the same version of scoring every time. A consumer can get a more accurate reading if they buy their scores directly from my FICO.com. The credit scores are generated by each crediting agency or bureau using FICO, which is being used by approximately 55 percent of the lender in the market.

Since credit scores directly impact the interest, a bank charge’s you must maintain a respectable credit score to improve the credit process. A higher credit score will net you low-interest rates or cost of credit. Keep checking your credit scores and reports regularly and address any discrepancies.

Your Credit Rating

Your credit rating is going to be an assessment of how much trustworthy you are as a borrower concerning debts or any other financial obligations. This rating can get assigned to any individual, institution or government that wishes to borrow money. It also plays a crucial role in determining the interest rate at which the borrower is going to repay the loan.

When it comes to generating credit rating, all agencies can set their custom scale. The rating system used by Standard & Poor is common. It uses a letter grading system to distinguish between strong and weak corporations and governments based on their ability to fulfill financial commitments. The Standard & Poor’s system assigns a Triple-A rating for governments or corporations that have the strongest capacity to fulfill financial obligations, followed by AA, A, BBB, BB, B, CCC, CC, C and D for default. Adding negative and positive signs can differentiate between ratings from double-A to triple-C. These ratings are calculated by looking at a government’s or business’s history regarding borrowing and repaying of loans. Fitch and Moody’s are other notable companies that generate credit ratings.

Credit ratings play a deciding role in determining the chances of a borrower getting approved for the loan. Since companies or governments are mostly dependent on loans to initiate a new project, denied from it be an end of the road for them. A high-interest rate will only make the matter much worse. Credit ratings also play an important role in determining potential investors. A low credit rating is a risky investment and might deter any future investors.

Key Difference

The major difference between the two is that credit scores are solely applicable to individuals, whereas corporations and governments use credit ratings. Credit scores get generated from the credit reports maintained by the credit reporting bureaus such as Transunion, Experian and Equifax. An individual credit score ranges from 300 to 850. Whereas agencies such as Standard & Poor’s assign the credit ratings. The grading ranges from triple-A(excellent) to D(default). A rating below double-B is not considered good and is more likely to default and receive high-interest rates.

Bottom Line

Good credit scores are essential if you wish to receive financial loans from lenders as your eligibility depends on it. It also plays a vital role in determining your loan interest; high credit scores mean low loan interest. Just remember that the score above 650 is good and 720 is excellent, maintain the credit scores between them, and you are good to go. If you keep your responsibilities in-check and pay-off balances within due date, you will be on your way to having a healthy credit profile.

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